20030210_384.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:FEBRUARY 7, 2003
SUBJECT:CASE NO. PAC-03-2 (PacifiCorp)
2003 ELECTRIC INTEGRATED RESOURCE PLAN (IRP)
On January 27, 2003, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
PCp; Company) filed its 2003 Integrated Resource Plan (IRP) with the Idaho Public Utilities
Commission (Commission).The Company s filing is pursuant to a biennial requirement
established in Commission Order No. 22299, Case No. U-1500-165. PacifiCorp states that its
IRP provides a framework and plan for the prudent future actions required to ensure PacifiCorp
continues to provide reliable and least cost electric service to its customers. The final IRP, it
states, culminates a yearlong collaboration with considerable public involvement from customer
interest groups, regulatory staff, regulators and other stakeholders.
PacifiCorp serves approximately 1.5 million retail customers in service territories
comprising about 135 000 square miles in portions of 6 western states: Utah, Oregon, Wyoming,
Washington, Idaho and California. This service territory has diverse regional economies ranging
from rural, agricultural and mining areas to urban, manufacturing and government service
centers.
PacifiCorp forecasts load on its system to grow by 2.2% in the east and 2.0% in the
west per year, on average. Given uncertainties of economic growth and other factors, this
growth in PacifiCorp s load, the Company states, could vary by 1.4% and 3.4%. At the same
times, PacifiCorp notes, the resources available to the Company to serve this demand will
diminish over time as supply contracts expire, hydro electric generation facilities are subjected to
relicensing conditions and thermal plants comply with more stringent emissions requirements.
DECISION MEMORANDUM
The Company s IRP was developed against the backdrop of continuing market
regulatory and structural changes in the electric industry. These changes, the Company states
highlight the importance of understanding the risks and uncertainties inherent in resource
planning. The IRP reveals that PacifiCorp has substantial new resource needs and will require an
additional 000 MW of new resources (DSM, generation, and supply contracts) through 2013.
Load growth, load shape growth, asset retirement and contract expirations cause the gap between
demand and supply to grow over time.
Other key findings in the IRP include:
The strongest resource strategy relies on a diverse portfolio of options
including strong components of renewables and demand-side
management, but also natural gas - and coal-fired generating resources.
A resource procurement process to pursue this diversified approach is
described in the Action Plan.
Possible paradigm shifts in the electric industry driven by federal
regulatory requirements are significant uncertainties for PacifiCorp and
its customers to manage in the next several years. These issues include
(potentially favorable) changes in transmission operations, as well as the
potential increased cost associated with PacifiCorp s existing resource
assets, including complying with air emission standards and relicensing
hydro electric facilities.
Renewable resources are a good fit for PacifiCorp within the context of a
diversified portfolio. The IRP proposes procuring renewable resources
(primarily wind, and possibly geothermal) at a level shown to be cost
effective, given the assumptions used to evaluate the resource. The
amount of renewables is also a level that would meet or exceed
renewable portfolio standards that have been proposed in federal and
state legislation.
Demand-side management (DSM) will continue to be an important and
cost-effective program for PacifiCorp. A significant increase in
programmatic m~asures is proposed, including a load control program to
help mitigate growing capacity requirements.
In addition to renewable resources and DSM, the study concludes that
additional resources from thermal generation will also be required. The
least cost option is a combination of three natural gas-fired units and one
coal unit to meet both growing energy and capacity requirements.
The least cost portfolio includes a coal baseload thermal unit in the east.
Coal-fired generation may be particularly advantageous when procuring
DECISION MEMORANDUM
resources in the Rocky Mountains, the Company states, because coal is
an abundant indigenous resource there. However, the long-term impact
of atmospheric emissions is casting doubt on the viability of coal-fired
generation. The IRP least cost portfolio is dependent upon the impact of
a number of these paradigm risks, including air emission standards and
possible global warming measures. PacifiCorp believes it has adequately
addressed these risks, based on its current understanding of them, and
coal plants remain a low cost option. The IRP action plan includes
further work to develop and test the viability of a coal baseload thermal
unit, including an ongoing assessment of the risks.
The Company s IRP proposes a significant procurement of new resources. The
strategy outlined in the IRP includes the addition of about 000 MW of new capacity over the
first 10 years of the 20-year IRP. The least cost, risk adjusted approach proposed is a diverse
portfolio of resources, including renewables, DSM and thermal baseload and peaking units.
These additions include the following portfolio additions during the planning period:
1400 MW of renewable resources
450 MWa ofDSM and 90 MW of direct load control
2100 MW of base load capacity
1200 MW of peaking capacity
700 MW shaped resource contracts
The Action Plan details findings of resource need and specific implementation
actions. The plan also outlines step-by-step decision processes by which proposed resources will
be continually evaluated and procured. Going forward, PacifiCorp will implement the Action
Plan, while also maintaining the flexibility to adjust to future changes and opportunities. The
Action Plan will be revisited and refreshed no less frequently than annually.
For analytic purposes, the IRP assumes new resources are developed and owned by
PacifiCorp. However, no decision has been made to invest in specific resources. The decision
to own, build and invest in a new resource versus contracting with a third party would be made
as part of the procurement process for each new resource addition, and on a case by case basis.
A multi-state process (MSP) (Case No. P AC-02-3) is expected to provide clarity on the
regulatory treatment on investment decisions and the degree of cost recovery risk held by
PacifiCorp. The Company anticipates that the MSP will issue findings in the spring 2003. The
MSP outcome will influence the activities and operations of PacifiCorp, and may impact action
plan implementation. The Company states that a significant procurement program and potential
investment is required to maintain reliable electric service. It is critically important, the
DECISION MEMORANDUM
Company contends, that state regulators support this IRP and issue their acknowledgement of the
Action Plan. This support coupled with a useful and durable MSP outcome, the Company states
is vital to PacifiCorp being able to resolve issues around recovery lag and achieving allowed
rates of return, and is critical in ensuring PacifiCorp can continue to provide least-cost, reliable
electric service to its customers.
COMMISSION DECISION
Staff recommends that the Company s 2003 IRP filing be noticed and that a six-week
comment period be established. Does the Commission agree with Staffs proposed procedure?
Scott Woodbury
bls/M:P ACEO302 sw
DECISION MEMORANDUM